Company debt may have motivated alleged Pilot scheme





A lengthy

Wall Street Journal

report

implied that company debt may have played a role in Pilot Corp.’s alleged scheme to defraud customers who participated in its fuel rebate program.

In April, the FBI and IRS raided Pilot Corp., which operates the Pilot Flying J truck-stop chain. According to an affidavit unsealed by a federal judge, a confidential informant said CEO Jimmy Haslam, son of the company’s founder, knew about the fraud.

Fifteen lawsuits have been filed against the company, and five employees have reached plea agreements with federal prosecutors, the

Journal

report said. Rating agencies have put the company’s credit ratings on watch for possible downgrade, the article said.

The company and its board are conducting separate investigations of the matter, the report said. In April, when the board decided to hire a prominent attorney to head its investigation, Jimmy Haslam was excluded from the board’s executive session “for the first time ever,” the

Journal

article said.

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Haslam says he will repay any money owed to customers, plus interest. Some sales staff have been put on administrative leave, the report said.

The company’s revenues for 2012 were $30.8 billion, the

Journal

article said. It is the largest U.S. retailer of diesel fuel for trucks, according to the report. The Haslam family now owns 59% of the company.

To finance growth in 1964 and 2001, the Haslams sold shares in the company to Marathon Oil Corp. Marathon wanted to exit in 2007; a year later, private equity firm CVC Capital Partners Ltd. acquired a 47% stake in Pilot, the article said.

In 2010 Pilot acquired most of the assets of a bankrupt competitor, Flying J Inc., for about $1.8 billion. This escalated the Haslams’ risk, the article said. The company’s debt nearly doubled to $4 billion in 2010-12, “as its owners paid themselves two payments totaling $1.7 billion from it,” partly to fund the purchase of the Browns football team in 2012, the article said.

In 2011, CVC reduced its stake in the company by half, the

Journal

report said. Meanwhile, Pilot’s market has been contracting, the report noted.

The FBI affidavit alleges that the rebate fraud scheme “stretch[es] back to 2008 and in some cases earlier,” the

Journal

article said.

“The company’s debt is due to be paid off or refinanced between 2016 and 2019,” the

Journal

reported.

Jimmy’s brother Bill Haslam was elected governor of Tennessee in 2011. Jimmy Haslam bought the Cleveland Browns NFL team last year. Fans are wondering whether he will be forced to sell the team, the article said.

The company “financed two buildings and an athletic field at the University of Tennessee, private jets and several estates, including Jimmy Haslam’s English Tudor overlooking the Tennessee River,” the

Journal

article said.

In January, Jimmy Haslam hired John Compton to replace him as Pilot’s CEO, but less than a month later Haslam told Compton he wanted his job back. (Source:

Wall Street Journal,

June 26, 2013.)

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